Intro
The dollar index (DXY) is still trading in critical territory just slightly above the big 100.80 support zone. This does not make things easy, because the fluctuations above and below this level can last for the next few days. After all, the central bank week is not over until Thursday. Before the Bank of Japan, however, it is the more important ECB's turn on Wednesday. In this respect, it makes sense to go into tonight's FOMC meeting with a neutral mindset as far as possible or even flat. Surely there will be enough opportunities for scalping around the meeting.
Central banks: Monetarism vs. Keynesianism
The fxstreet.com ecnonomic calendar says there will be another rate hike of 25 basis points to 5.5% tonight. However, in view of the development of the CPI figures in recent months, an early end to interest rate hikes is also possible.
(source: investing.com YoY, Core YoY, own representation)
There are arguments for both sides: On the one hand, policy rates have historically often been significantly higher than the inflation rate. Former central bankers saw this as the only way to limit inflation and as their only task. And my economic gut feeling rather confirms this approach. On the other hand, the mindset that unlimited money printing (economic stimulation) is useful and has no side effects has manifested itself in recent legislative periods.
At least verbally, the FED keeps trying to get the market ready for persistently higher interest rates. But whether Jerome Powell will really stick to this or fire up the printing press again at the next opportunity remains to be seen.
Conclusion
The “great end” of the dollar as a reserve currency will probably not be decided tonight. At least for the currency pairs we discuss here, especially with regard to the euro, I think the swan song is premature (BRIC is another matter). Nonetheless, I am sticking to the technicals. Both the pound and the euro may have found their bottom against the dollar for the time being. The yen continues to trade weakly above the 140 level. But the week is still long.
Good luck,
Sebbo